Chapter 13 study guide

Select three true statements regarding smart contracts.

A smart contract is an agreement where the terms are written on a blockchain. Once the parameters of the contract are applied to the blockchain, the contract executes automatically. Once a smart contract is written on the blockchain, the contract cannot be changed.

Aside from a single vulnerability, found and corrected in April 2010, no flaw in the ___ has been discovered.

Bitcoin blockchain

The largest cryptocurrency by market capitalization, __________, is accepted by well over 100,000 merchants.

Bitcoin or BTC

Traditional finance (TradFi) uses centralized organizations such as banks and credit unions to facilitate transactions for customers. ___ uses smart contracts built on blockchains.

Decentralized finance (DeFi)

Despite being started as a spoof, __________ (DOGE) at one point had a market capitalization of over $33 billion.

Dogecoin

Assets are wrapped using Ethereum Request for Comments (ERC) protocols. The most commonly used is the ___, which is generally used for contracts that exchange cryptocurrencies.

ERC-20 protocol

Which three of the following statements regarding decentralized finance (DeFi) are correct?

Ether (gas fees) is the most common medium of exchange in the smart contracts that support DeFi. It uses smart contracts built on blockchains to eliminate the requirement of trust and to reduce transaction fees. Ethereum's blockchain hosts the vast majority of the smart contracts that support DeFi.

If you purchase Ethereum (coins), the transaction operates on the Blank______ blockchain, since it is a native coin.

Ethereum

Seeing the success of Bitcoin's blockchain, but wanting to capitalize on the ability to create smart contracts, the developers of the Blank______ blockchain made it more flexible and faster than Bitcoin's blockchain.

Ethereum

To make an NFT, a smart contract wraps the digital artwork, using the ERC-721 protocol, creating a unique token that can then be sold over the Internet. ERC stands for ___ request for comment.

Ethereum

Some blockchains charge fees (called gas fees) for transactions. The first major blockchain that enabled decentralized financial (DeFi) transactions was __________.

Ethereum or ETH

The second largest cryptocurrency by market capitalization, was designed to also allow smart contracts and applications to be built on its blockchain.

Ethereum, Ether, or ETH

Litecoin (LTC) resides on the Bitcoin blockchain.

False

Developed by Charlie Lee in 2010, the Blank______ blockchain was created to be a faster store-of-value coin than Bitcoin.

Litecoin (LTC)

To remedy the slow transaction time issue associated with PoW blockchains such as Ethereum 1.0 and Bitcoin, ___ blockchains were created, allowing for far faster transactions.

PoS

Bitcoin

Store of value (alternative currency)

Ethereum

Store of value (alternative currency), and also to create smart contracts

Solana

Store of value (alternative currency), and also to create smart contracts and decentralized applications (dApps)

A cryptocurrency's supply is controlled by a protocol called Blank______ that distributes control among the users and participants.

a consensus mechanism

If all parties want to update a smart contract, they have to build an additional contract, called:

a proxy contract

If all parties wanted to update a smart contract, they would have to build an additional contract, called ___.

a proxy contract

Which of the following is a technology that attempts to ensure that, once the software is constructed, it cannot be altered?

blockchain

A technology that attempts to ensure that once a piece of software is constructed it cannot be changed is known as __________ technology. Bitcoin is an example of a cryptocurrency that is built on this technology.

blockchain or block chain

Cryptocurrency coins work with their native __________.

blockchains or blockchain

Unlike other large accessible databases that are controlled by corporate entities, such as Netflix or Spotify, public blockchains are hosted on a public ledger, which can be considered a huge database, that stores the data for a blockchain and essentially runs as a peer-to-peer network. This means they have no:

controlling central authority

Digital money that is based on a blockchain is called

cryptocurrency or crypto

Similar in function to a site where you would switch dollars for euros, a cryptocurrency __________ (CEX) allows users to buy and sell different cryptocurrencies.

exchange

The price of conducting transactions on blockchains is known as the ___.

gas fee

The software that allows an owner to access a cryptocurrency account is called a private __________. This typically grants the owner access to their wallet.

key

Servers that host the database are known as public ledgers because they are accessible to everyone and do not require that users place their trust in any individual. This means they are ___.

permissionless

Transaction fees (gas fees) per transaction on PoS blockchains are miniscule compared to those conducted on ___ blockchains.

proof-of-work

Like Bitcoin and Litecoin, the Dogecoin blockchain is a Blank______ blockchain.

proof-of-work (PoW)

For purposes of security, wallets are typically accessed through a combination of:

public and private keys

Scams and fraud, hacking, and simply losing your private key, along with volatility, are __________ associated with buying cryptocurrency.

risks, drawbacks, downsides, negatives, or hazards

Select three categories of risks associated with cryptocurrency trading.

scams and fraud hacking volatility

An agreement where the terms are written on a blockchain is referred to as a __________ contract.

smart

Bitcoin and Litecoin, because they are established proof-of-work (PoW) coins, are considered __.

store-of-value coins

To purchase Ethereum with Bitcoin, you would use a wrapped Bitcoin (wBTC) to create what is referred to as a wrapped ___.

token

NFTs are assets attached to a blockchain. NFTs stands for non-fungible __________.

tokens or token

The three main types of cryptocurrency exchanges include:

traditional brokerage peer-to-peer (P2P)

The first major cryptocurrency, Bitcoin, was developed to be an alternative currency that could not be manipulated by any government entity. This is why it is called a store-of-__________ cryptocurrency

value

If you wish to purchase Ethereum (ETH) with your Bitcoin (BTC), you would use wBTC, which stands for a Bitcoin token.

wrapped